China's Amped Up Criticism Puts Apple in Curious Position

By Bryan Chaffin

Mar 28th, 2013 8:45 PM EDT

Apple is in the process of enduring a government-orchestrated PR campaign against the company, accusing Apple of ripping off Chinese consumers with warranty policies that are inferior to warranties Apple offers the rest of the world. The situation puts Apple in a curious position.

Let's start with manufacturing. Apple makes almost all of its products in China and Taiwan. There are at least seven hundred thousand people—maybe as many as a million—assembling Apple devices and manufacturing the components that go into them.

Even in a country of 1.3 billion people, being directly responsible for a million jobs is a pretty big deal. One would think that China would value Apple's decision to outsource its manufacturing operations in the country, especially considering the reality that Apple paying (through Foxconn) those employees more than other manufacturing positions pay.

One might think, but in the last few weeks there have been two separate attacks from state-owned media outlets, and on Thursday a Chinese regulator jumped into the mix.

The first attack came from the CCTV network and a show called 315. According to media reports about the show, Apple was accused of using refurbished parts for iPhone repairs in China and offering warranty terms that were inferior to what Apple provides in the rest of the world.

Apple responded with a statement to the effect that its warranties in China were similar to the rest of the world's, but it was that response that earned the second attack. The People's Daily, which is owned by the Communist Party, criticized Apple's response and accused Apple of "unparalleled arrogance." Apparently The People's Daily didn't have access to a dictionary before penning that piece.

The entertaining part of this saga is that it backfired. After the 315 report, a host of celebrities took to Weibo—a Twitter analog that is very popular in China—to pile on and express their dismay that Apple could treat its customers so poorly.

When an actor and Samsung spokesman named Peter Ho included "Post around 8:20" at the end of a post echoing the TV show, savvy Weibo users accused him and other celebrities as having been instructed to make their comments. The hashtag #postaround820 became a thing and the backlash against 315 turned the situation into one that was favorable to Apple.

The question is why? What's the goal here? Is China truly concerned about Apple's warranty practices? Maybe, but folks on Weibo were busily asking the same question. Why Apple? They pointed out persistent problems with tainted milk and other consumer protection issues that get ignored and wanted to know why Apple was being targeted.

One possibility is that the government is concerned about the rise of foreign premium brands like Apple and the potential outflow of cash from the country that each sale of an iPhone represents. Indeed, this could be the very reason it's been so hard for Apple to get a deal with state-owned China Mobile.

Another possibility is that China is merely working to help promote the growth of home-grown smartphone manufacturers. By criticizing Apple and coupling it with a patriotic spin, China may hope that local brands of smartphones get more attention.

Another fanciful theory I've personally entertained is that China wants more cooperation with tracking mobile device use and users. Perhaps Apple was asked to do something and declined, and the attacks were either a message or punishment. I've heard nary a peep to that effect, however, and it's mere speculation on my part.

Along those same lines, China might simply understand that local manufacturers will be easier to control when it comes to such issues, and government officials want to curb Apple now, rather than later.

Heck, maybe it's something even simpler. Some party boss might be pissed at Apple or have investments in local manufacturers. He could be using his powers to advance a personal agenda or make a little money.

Whatever the cause, Apple is in a weird spot. It makes its products in China, China is its second biggest market and destined to be its largest (barring problems like this one). Getting into China Mobile alone could result in tens of millions of new iPhone sales every year.

In other words, problems for China could be really bad for Apple, even while an Apple slowdown or pullout of China would be bad for the Chinese economy.

As I said in the Apple Context Machine, these are some tough issues. I'm glad my job is simply to discuss them, rather than solve them. I don't envy Apple CEO Tim Cook's task of negotiating these waters.

This piece was developed in part from a discussion with Jeff Gamet in episode 197 of the Apple Context Machine.